Solar leases vs. solar PPAs: What's the difference?

When you're shopping for solar, you'll likely encounter two financing options that sound nearly identical: leases and power purchase agreements (PPAs). Both let you go solar without buying the system outright. Both eliminate upfront costs and hand off maintenance to the solar company. Both reduce your electricity bills from day one.

So what's the actual difference? It comes down to how you pay each month. A lease charges you a fixed monthly amount, while a PPA charges per kilowatt-hour of electricity the panels produce. These third-party ownership options are particularly appealing if you want to preserve your capital for other investments while still benefitting from energy savings.

Here's what you need to know to decide if a lease or PPA makes sense for your situation—and which one fits better.

Solar leases and PPAs are forms of third-party ownership (TPO), meaning you don't own the solar panels on your roof. Instead, a solar company installs and owns the system, and handles any maintenance. You simply purchase the electricity the panels generate, typically at rates lower than your utility charges.

This arrangement shifts the investment burden from you to the solar company. They cover the upfront costs—an average of $29,649 based on EnergySage data—and recoup their investment through your monthly payments over 20-25 years. In return, you get immediate bill savings without tying up capital or navigating complex financing.

How incentives work with third-party ownership

With TPO, the solar company owns the system and therefore receives any solar incentives available to commercial owners directly—including tax credits, rebates, and performance-based incentives like solar renewable energy certificates (SRECs). You won't claim these on your taxes, but competitive providers should pass the value through to you as lower monthly rates.

The federal solar investment tax credit expires for purchased residential systems installed after December 31, 2025. For most homeowners looking to buy, this credit is no longer accessible due to limited installer capacity through year-end. However, solar leases and PPAs still qualify for commercial tax credits (Section 48 of the U.S. tax code) for systems that begin construction before July 2026 or are placed in service before January 2028. 

When evaluating offers, ask how providers incorporate incentive savings into your rate structure. The best providers are transparent about passing these savings along rather than simply pocketing them. This makes TPO especially valuable if you have limited tax liability or can't easily benefit from incentives yourself.

While leases and PPAs share the same basic structure—you pay for solar electricity, the company owns the system—they differ in how you're charged:

• Solar lease: You pay a fixed monthly amount (for example, $230 per month) based on your system's estimated annual production. Your payment stays consistent year-round, making budgeting straightforward.

• Solar PPA: You pay per kilowatt-hour (kWh) of electricity your system produces (for example, $0.24 per kWh). Because solar panels generate more electricity in summer than winter, your payments fluctuate with the seasons.

How does the billing structure work for leases and PPAs?

Here's how this might play out for an average-sized solar panel system in a state like Massachusetts—10.5 kW—over 12 months, assuming the system covers 100% of the household's electricity usage and the lease/PPA comes with a 20% discount compared to the average cost of electricity in Massachusetts ($0.30/kWh).

Over a full year, both options cost about the same—you'll pay approximately $2,761 and generate the same amount of solar electricity, significantly less than the $3,451 that you’d otherwise pay your utility company. The difference is payment consistency versus production transparency.

Should you choose a lease or a PPA?

• Choose a lease if: You value payment consistency and want the same bill amount every month for easier budgeting.

• Choose a PPA if: You want your payment directly tied to your system's performance—you'll pay less if it underperforms and can more easily track whether you're getting what you pay for.

As long as your system is performing as it should, annual savings typically work out the same with either option. The choice mostly comes down to whether you prefer predictable payments or production-based billing.

Solar lease and PPA agreements tend to be more complex than solar loans or cash purchases because of the long-term relationship between you and the system owner. Here are key terms you'll encounter:

• Annual escalator: Many lease and PPA agreements include annual rate increases—typically 1-3% per year. These escalators assume utility rates will rise faster than your solar rate, preserving your savings. Look for agreements with low or zero escalators to maximize long-term value. Fixed-rate agreements are becoming more common and typically offer better long-term savings.

• Term length: Residential solar leases and PPAs usually last 20-25 years, though some different term lengths are now arising.

• Performance & maintenance: The leasing company monitors your system's performance and handles all maintenance and repairs at no cost to you. In general, solar panels require little maintenance over their lifetime, but having this coverage provides peace of mind. Some providers respond faster than others to service issues, so check reviews when comparing offers.

• Monitoring: Most providers offer free online, smartphone, or tablet apps to track your system's performance in real-time. This lets you verify production and catch any issues early.

• Buying the system: Some agreements let you purchase the system outright during the lease term, typically at fair market value or a price specified in your contract (whichever is higher). This can be attractive if you want to maximize long-term savings or simplify a home sale.

• Selling your home: If you sell your property, you can transfer the lease to the homebuyer or buy out the system and include it in the sale. Buyers typically need to pass a credit check, but if they qualify for a mortgage, they'll usually qualify for the lease transfer. Be aware that some buyers may view the lease as a complication, potentially affecting your home's marketability.

• End of term: When your agreement ends, you can typically buy the system outright, renew the agreement (often at reduced rates), or have the company remove the system at no cost to you.

Types of solar leases & solar PPAs

While most leases and PPAs are structured as $0-down agreements, you'll encounter several variations:

When comparing structures, calculate your total cost over the full term and compare it to ownership options. The right structure depends on your available capital, monthly budget preferences, and how you value flexibility versus upfront costs.

Leases and PPAs both accomplish the same thing—they put solar panels on your roof without requiring you to buy them. The choice between fixed monthly payments and per-kilowatt-hour billing mostly comes down to personal preference. Some people want the predictability of knowing exactly what they'll pay each month. Others want their bill directly tied to what the system actually produces.

With the right agreement, both paths should deliver immediate electricity savings, preserve your capital, and shift any maintenance responsibilities to someone else. Whether you lease, sign a PPA, finance with a loan, or purchase your system outright, you're taking control of your electricity costs—which beats staying at the mercy of your utility's rate increases.